Programme Code: RMT5113
Medium of instructions:
Prof. Dr. Saiful Azhar Rosly
Banks take risk in the pursuit of profits. While risk-taking is the bsis of all business, conventional banking deals predoinantly with managing financial risk such as credit, market and liquidity risk while Islamic banking has to account for two more unique risks, namely business/ commercial risk and Shariah non-cmpliance risk (SNCR). This complicates the analysis of Islamic banking within a dual financial system. What is more intriguing is the funding sources of Islamic banks that uses the profit loss sharing principles (PLS) but holding the attributes of deposit funds. Under these challenges and constraint, the cours looks at the islamic banking business and how it deals with risk management in an environment dealing with the demand of divine order within opposing financial infrastructures. Islamic banking success will then, critically depends on the strong corporate and shariah governance to evident SNCR-free operations that are rooted on solid ethical principles.
When islamic banks make murabaha to earn profits and assume risk associated with the financing operations, it is expected to find ways to manage these risks as well, which include credit, market, liquidity, operational and Shariah non-compliance risk. Some risk faced by Islamic banks are unique, hence requires special attention and ability to detect and control them accordingly. Hence managing these risks involves, identification, measurement and mitigation of the risks associated with all positions taken up by the bank. On the flip side, the objectives of the banking business must be in line with the public interest, where financial stability must be secured by way of robust regulatory and supervisory control. This is where capital adequacy and its management under the pretext of Basel Accord and IFSB regulations are examined in a critical way to assess its impact on the Islamic banking business and the overall financial system.
By the end of this course students should be able to :
Describe the existence of risks in banking and finance and the concept of risk from the Islamic perspectives.
Distinguish the different types of risk peculiar to Islamic banking and be familiarised with the risk management process and the regulatory requirements and governance.
Apply the quantitative tools and techniques in identifying and measuring the various types of risk.